No SMSF compensation scheme, says SPAA

The SMSF Professionals’ Association of Australia remains adamantly opposed to any type of compensation scheme for self-managed super funds.

“The guiding philosophy underpinning self-managed super is that trustees or members take responsibility for their own retirement income outcomes,” CEO Andrea Slattery said this morning.

“By opting to go down the SMSF path trustees or members have to appreciate that decisions rest with them, although they can get advice, either directly or indirectly, from specialist SMSF advisors.”

The Cooper Review of superannuation, from May 2009 to June 2010, concluded the SMSF sector was largely successful and well-functioning.

But policy interventions which continue to be discussed since the review include whether there is a need for an SMSF compensation scheme funded by an SMSF levy to protect against losses.

Assistant Treasurer Arthur Sinodinos said yesterday the government had no intention to introduce a compensation scheme, because to do so could encourage excessive risk-taking.

However, the need for further SMSF regulation with the choice to use an SMSF must be balanced.

Yesterday, the Federal Court in Adelaide froze all assets of Charterhill, a group of companies providing advice to clients on the establishment of SMFS, rollover of existing superannuation funds into an SMSF, sourcing and purchase of investment properties, property management, insurance and taxation.

The court also ordered founder George Nowak and his wife Betty Nowak to surrender their passports, and has restrained their travel outside Australia.

Nowak told clients in a letter last week the reason for the collapse of his financial services group was its diversification strategy.

ASIC is currently investigating the group’s $9.6 million collapse and asks clients and creditors to contact various administrators or liquidators to find out more about their funds.

Currently the full amount of lost retirement savings is unknown.

If a compensation scheme was to be put in place in future, it should only be part of a broader financial services scheme where clients have suffered financial losses because of the misconduct or insolvency of a provider of a product or service, Slattery said.

"The compensation should be funded by a levy imposed on that industry sector where the misconduct occurred."

She also said it is a misconception that SMSFs are not entitled to compensation when fraud or theft occurred.

“This is incorrect. Although SMSFs don’t have access to compensation under the Superannuation Industry (Supervision) Act 1993 Act that is available, at the minister’s discretion and only where it is in the public’s best interest to approve compensation for APRA-regulated funds, there are other legal avenues that SMSFs can pursue.

“These include but are not limited to personal Indemnity schemes; actions under the Corporations law; action in the courts to obtain compensation for damages; the Financial Ombudsman; and the banking and credit legislation.

“Although these legal options are not foolproof, they do give trustees/members options when there are instances of fraud or theft; but then again, no current scheme is foolproof.”